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Tuesday, December 14, 2010

Bernanke's Gift to Producers (Michael Pento)

Producer Prices rose in November by the most in eight months, according to the Department of Labor. Wholesale costs increased by .8% from one month to the next; but repeat after me, Bernanke isn’t printing money and there is no inflation. Further evidence of inflation being benign was illustrated in the fact that if you eliminate everything people actually consume every day, the jump in prices was “just” .3% from October to November. However, if you happen to fall in the category of individual who is in the habit of eating, food prices jumped 1% month over month on the producer price level. Also, if you can’t ride your bicycle to work, it was be disconcerting to learn that energy prices rose 2.1% in just one month!

Food producers such as Kraft and Dean Foods will continue to face a daunting decision; do they pass along these soaring input costs or do they compress margins and reduce their profits. Businesses are already suffering undue pressure from the fallout of the financial crisis. The Fed’s offered consolation is a much higher cost of doing business, which has in turn lead to reduced hiring practices and an increasing rate of unemployment.

Of course, none of that matters because the retail sales report showed that consumer purchases increased by (coincidentally) .8%. Now that figure just happens to coincide with the increase in the PPI. So maybe all of the increase in sales was the result of inflation. We’ll find that out tomorrow when the figures for CPI are released.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.